Legal and regulatory updates

Recently the German legislature passed a new law, exempting extraordinary profits created by the waiver of claims under restructurings from income tax liability. The amendment was necessary because the German Federal Tax Court had previously held the original administrative decree (which in a conceptually different manner avoided the tax burden on such profits) unlawful. This article gives a brief overview over the legislative history and the practical consequences of the amendment.
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The Recast Insolvency Regulation 2015/848 governs cross-border insolvency proceedings within the European Union. It provides in particular for the opening of the main proceedings by the jurisdiction of the member state where the centre of the debtor’s main interests is located (presumed to be the place of its registered office) and the opening of one or more secondary proceedings in the member states where the debtor possesses an establishment.

In the case at hand, insolvency proceedings were opened in 2012 in Romania against Izoplac, its headquarters being in Romania. In 2014, Izoplac was placed under judicial liquidation in France upon the request of a creditor. The court set the insolvency date and the Public Prosecutor petitioned for a ban on managing against the manager for failing to file for insolvency within 45 days.
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The recently published report on the evaluation of the ESUG, the German law to facilitate the restructuring of companies, states that the changes introduced by the ESUG have been received positively overall, but that there is still room for improvement in many areas. Should the EU Restructuring Directive actually be adopted at the beginning of 2019, the legislator would have the opportunity to improve the ESUG legislation and implement the EU requirements for pre-insolvency restructuring proceedings in one bill. This would give the legislator the opportunity to further increase the global competitiveness of the German insolvency code and thereby strengthen the German market as such.
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In July 2017, we wrote about the case of Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (in liquidation) (receivers and managers appointed)[1], in which the Western Australian Supreme Court held that rights of set off enjoyed by an insolvent company’s contractual counterparties would not apply if the company had granted a security interest over the relevant contractual rights under the Personal Property Securities Act 2009 (PPSA).

The decision has been overturned by the Court of Appeal of the Supreme Court of Western Australia[2], such that the existence of a security interest will not necessarily of itself preclude the operation of statutory or contractual set off rights in favour of third parties.

The decision is significant because it potentially has a dramatic impact on the competing rights of secured and unsecured creditors in liquidation, and may prevent secured creditors from enjoying a windfall at the expense of unsecured creditors. It also places the emphasis firmly on the terms of the relevant security interest and underlying contract, which will now need to be considered in detail each time there is a claim for set off by the insolvent company’s contractual counterparties.

[1]               [2017] WASC (2 June 2017)

[2]               Hamersley Iron Pty Ltd v Forge Power Group Pty Ltd (in liquidation) (receivers and managers appointed) [2018] WASC 163


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Nearly a year ago, the Italian Parliament passed Law 155/2017 giving the Government twelve months to adopt a root and branch reform of the rules governing business distress and insolvency procedures, taking into account European legislation (EU Regulation 2015/848, Commission Recommendation 2014/135) and the principles of the United Nations Commission on International Trade Law.  On 11 October 2018 the Italian Government issued the long-awaited draft of the legislative decree establishing the new Code for Distress and Insolvency (Codice della crisi d’impresa e dell’insovenza, the “New Code“).

The demise of insolvency?

At the heart of the New Code is the concept that the notion of “bankruptcy” (fallimento) is a thing of the past, to be replaced by “judicial liquidation” (liquidazione giudiziale), which becomes the last resort, available only when the debtor has failed to propose any other suitable solution. Seeking to ensure the best interest and satisfaction of creditors, the New Code prioritises procedures aimed at overcoming the crisis by keeping the business as a going concern (even if under new ownership).


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US federal banking regulations that go into effect next year require certain major financial institutions to ensure that their qualified financial contracts (QFCs), such as swaps and repurchase agreements, are subject to temporary or permanent limitations on counterparties’ legal abilities to exercise default rights in the event that the financial institution becomes subject to a

A recent High Court case (Fairhold Securitisation Limited v Clifden IOM No 1 Ltd) has affirmed that in debt issuances involving a trustee, noteholders have only limited rights to take direct enforcement action.  The case confirmed that:

  • trustees do not need to act on holders’ instructions until holdings have been verified;
  • on receipt of instructions, a trustee is not bound to act until it has had a reasonable time to verify holdings, review instructions, take advice and obtain satisfactory indemnification;
  • where a trustee holding a floating charge is obliged to take enforcement action, its failure to do so does not entitle noteholders to step into the shoes of the trustee and appoint administrators.


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Substantial reforms to Regulation (EC) 1346/2000 on insolvency proceedings were made under Regulation (EU) 2015/848 of 20 May 2015 on insolvency proceedings (recast) (the “Recast Insolvency Regulation“).  The Recast Insolvency Regulation applies to insolvency proceedings commenced on or after 26 June 2017.   Following changes to the insolvency laws in a number of Member States, the European Commission has adopted new Annexes A and B, which contain the details of the insolvency proceedings and insolvency practitioners falling within the scope of the Recast Insolvency Regulation.
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The European regulation of 20 May 2015 on insolvency proceedings (the “Insolvency Regulation”) came into force a year ago, significantly modifying European insolvency law. An ordinance published in November 2017 started the process of adapting French law to reflect the requirements of the Insolvency Regulation. A decree of 5 June 2018 (the “Decree”) modifying the regulatory part of Book VI of the French Code de Commerce is the final piece in the jigsaw.

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On 23 May 2018, New York’s Appellate Division, Second Judicial Department (an intermediate appellate court covering a vast swath of “downstate” New York) decided Soroush v. Citimortgage, Inc.  – a closely watched case that many in the industry worried would decide the fate of “de-acceleration letters.” De-acceleration letters are commonly used by loan servicers as a tool to revive aged defaulted mortgage loans that otherwise would be in danger of becoming time-barred.

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